Platinum, a malleable and ductile metal first mentioned around 1557 by Caesar Salinger, has become one of the most expensive commodities today. It is even rarer than gold. Every year, only about 130 tons are being mined compared to 1,700 tons of gold.
Like other precious metals, you can also trade platinum using an appropriate broker. This post is a comprehensive guide to platinum trading for beginners. Keep reading to learn more about the top platinum market businesses, what drives the price, and methods of trading it.
Platinum Production in Numbers
Platinum is a precious metal extracted from ore bodies with platinum group elements, such as iridium and osmium. Miners extract platinum from placer deposits and sperrylite. Because of the high demand, a small portion of platinum is recovered from scrap metals and sold back into the market.
South Africa contains the most significant platinum reserves, and it contributes about 75% of the global output. About 120,000 kilograms of platinum are mined from South Africa every year. Other top producers of platinum are Russia and Zimbabwe.
What Drives the Price of Platinum?
Historically, platinum demand is driven by the industry and traders, making it closely follow the trends of other precious metal commodities, such as silver and gold. So, if you are interested in platinum trading, here are the five primary drivers of its demand and price.
- The Economy of South Africa
Apart from producing 75% of the total global platinum output, South Africa is also home to the largest reserves. However, South Africa is a developing nation with a volatile and unpredictable economy. Events like political unrest and labor strike slow down production, which can sharply increase the market price.
The country’s economic events and how politicians respond to the events also have a bearing on the global supply. Restrictions on land use, taxes, and the nationalization of assets can further affect platinum’s global supply and price.
- The Vehicle Manufacturing
As the demand to address global warming intensifies, the vehicle manufacturing industry has raced ahead and crafted new technologies to reduce harmful emissions. One of these technologies is the use of catalytic converters, which are designed using platinum. About 40% of the global platinum demand comes from the auto manufacturing industry, where it is used to make catalytic converters.
Because more countries are adopting policies to reduce harmful emissions, platinum demand is expected to continue increasing. Following these policies’ development can help you understand the emerging shifts in price as a platinum trader.
- The Development of Electric Cars
The development of electric cars aims to cut reliance on fossil fuels and promote sustainable economies. Because electric vehicles use electricity as opposed to gas, they do not require installation with catalytic converters. Therefore, the increase in production and use of electric cars is expected to globally push down the demand and price of platinum.
Platinum Trading: Here are the Common Options
To start trading platinum, the first step is identifying a good broker. So, check for a trading broker with an easy-to-use platform, low transaction fees, and professional analysis.
To make it easy for you to diversify your trading portfolio, a good broker should also have multiple trading instruments. An excellent example of other trading instruments to check might include forex, stocks, and bonds.
Once you have identified a good broker, here are some standard methods of platinum trading to consider:
- Platinum Shares
This method involves trading shares of companies that deal with platinum. Although these companies are not many, you can get them listed in various stock exchanges, such as the Johannesburg Stock exchange, London Stock Exchange, and New York Stock Exchange. Some of the companies that you might consider are Anglo American Platinum, Lonmin, and Impala Platinum.
- Trading Platinum Futures
This method involves buying and selling platinum futures (contracts) for a difference on a specified date. Traders use leverage to purchase platinum contracts tied to the current price of platinum on the market. This implies that you can trade platinum without buying and owning it.
- Trading Platinum ETFs (Exchange Traded Funds)
ETFs are investment funds that are traded throughout the day in stock exchanges. Check for ETFs with platinum as the main asset and trade them on your selected broker’s trading platform. One worthy example that you might want to check is the Sprott Physical Platinum & Palladium Trust.
- Platinum Bullions
If you want to use a more direct trading platinum method, one option to consider might be platinum bullions. The bullions are available in different sizes, such as one ounce and one kilogram.
When dealing with physical platinum bullions, storage can be a serious concern. Therefore, you might want to start by installing reliable and robust storage units in your house.
Make Sure to Have a Good Trading Strategy
If you decide to trade platinum ETFs and shares, it is also crucial to adopt an appropriate strategy. For example, you might want to use fundamental trading, which involves following the latest news and reports that affect platinum’s price on the market. If word of a growing demand for platinum in auto manufacturing gets released, you can open trades to profit from the expected price changes.
Another common strategy uses technical analysis, which relies on statistical data, such as stock prices, historical returns, and volume of trades, to predict possible chart patterns. To effectively use technical trading strategies, you might want to work with indicators such as Bollinger bands, moving averages, relative strength index, and Ichimoku.
Note that no matter the strategy you prefer for platinum trading, it is essential to review it to determine the level of success progressively. You should also build your platinum trading skills to increase the chances of being more successful.
The first step should be to understand the basics and the factors that drive demand to start trading platinum. Then, you should pick a good broker and select the preferred method of trading. To increase your chances of success, it would be a good idea to also diversify your trading portfolio by expanding focus to other instruments, such as USA 500 stocks and bonds.